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may 2011
Insolvency &
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On Record Contents:
The Tax Man Is
Defeated Once Again:
SCC Confirms Crown’s
Status as an “Ordinary
Creditor” for Unremitted
GST Amounts in CCAA
Reorganizations
Page 1
Set-Off Rights in Oil
& Gas Insolvencies:
the SemCAMS Saga
Continues
Page 3
Debt Restructuring
Using a Plan of
Arrangement
Page 6
Including Partnerships
in CCAA Proceedings
Page 8
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Insolvency & Restructuring, Editor-in-Chief
Doug Nishimura
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(403)260-0269
Insolvency & Restructuring, Managing Editor
Rhonda G. Wishart
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(403)260-0268
Contributing Writers and Researchers:
Simina Ionescu-Mocanu, Emily T. Joyce
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1
The Tax Man Is Defeated Once Again:
SCC Confirms Crown’s Status as an “Ordinary Creditor”
for Unremitted GST Amounts in CCAA Reorganizations
by Simina Ionescu-Mocanu

2 Insolvency & Restructuring
With Century Services, the Supreme Court has communicated a desire to maintain
consistency in insolvency and restructuring proceedings and has discouraged statute
shopping by treating creditors equally in both regimes.
Introduction
With recent amendments to insolvency and tax legislation, the Crown’s
priority position in a bankruptcy has become clear — the Bankruptcy
and Insolvency Act 1 (“the BIA”) explicitly provides that statutory deemed
trusts are ineffective in a bankruptcy unless they relate to amounts owing
pursuant to the Income Tax Act 2 (“the ITA”), the Canada Pension Plan 3
(“the CPP”) and the Employment Insurance Act 4 (“the EIA”).
GST/QST 5 claims are not afforded similar protection. In fact, the Excise
Tax Act 6 , which creates a deemed trust over these amounts, also confirms
that the trust is valid unless otherwise provided by the BIA. As a result, in
a bankruptcy, the Crown is a mere unsecured creditor with respect to
unremitted GST/QST, ranking subordinate in priority to the bankrupt’s
secured creditors.
The priority provisions of the BIA and the Companies’ Creditors Arrangement
Act 7 (as amended, the CCAA) are identical. However, the Excise Tax Act is
silent on the trust’s validity in CCAA proceedings. Because of this apparent
drafting anomaly, it was commonly believed that the Crown had, at
minimum, some room to argue that the deemed trust remained valid in
a CCAA restructuring. 8 Nevertheless, the Crown’s position in these types
of proceedings remained unsettled.
Impact of Century Services
Uncertainty was the status quo until December 16, 2010, when the
Supreme Court of Canada (“the Supreme Court”) released its judgment
in Century Services Inc. v. Canada (Attorney General) 9 (“Century Services”)
and confirmed the Crown’s unsecured position for unremitted GSA/QST
amounts in CCAA restructurings.
Century Services dealt with an unsuccessful CCAA reorganization attempt
by Ted LeRoy Trucking Ltd. (“LeRoy Trucking”). When LeRoy Trucking
first filed for protection, it owed over $300,000.00 to the Crown for
unremitted GST. Once LeRoy Trucking concluded that reorganization was
impossible, it sought leave to partially lift the CCAA stay of proceedings so
that it could assign itself into bankruptcy. The Crown applied for a motion
requesting that LeRoy Trucking immediately pay the outstanding GST.
A second important issue in the case then became whether the Chambers
Judge could lift the stay of proceedings to allow LeRoy Trucking to file
for bankruptcy protection, while, at the same time, staying the Crown’s
right to sue LeRoy Trucking for the unremitted GST.
The Chambers Judge used the broad discretion provided by section 11
of the CCAA to deny the Crown’s motion and allow LeRoy Trucking’s
assignment in bankruptcy. On appeal, however, the Court of Appeal agreed
with the Crown and held that once LeRoy Trucking’s reorganization had
failed, the Chambers Judge was bound by the Excise Tax Act to allow the
Crown to demand payment of unremitted GST. In its view, the chambers
judge had no discretion under the CCAA to continue the stay.
When LeRoy Trucking appealed, the Supreme Court reminded the
parties that protection for statutory deemed trusts in insolvencies must
be expressly provided in legislation. As noted above, the CCAA provides
protection for deemed trusts arising under specific legislation only (the
ITA, the CPP and the EIA). Crown claims over GST are not protected.
This, in the Supreme Court’s view, suggested that Parliament had waived
its priority over unremitted GST amounts in a restructuring.
As to the drafting inconsistency in the Excise Tax Act, the Supreme Court
found that it created an “apparent” conflict only and found no evidence
that Parliament intended to treat GST claims differently under the CCAA
than under the BIA. The Supreme Court noted that
... a strange asymmetry would arise if the interpretation giving the
[Excise Tax Act] priority over the CCAA urged by the Crown [was]
adopted here: the Crown would retain priority over GST claims
during CCAA proceedings but not in bankruptcy. As courts have
reflected, this can only encourage statute shopping by secured
creditors in cases such as this one … 10
The Supreme Court further concluded that the Chambers Judge had
authority under the CCAA to lift the stay to permit LeRoy Trucking to file
for BIA protection. The transition from the CCAA to the BIA requires courts
to lift the CCAA stay to allow the debtor to begin BIA proceedings. However,
the stay should only be partially lifted — that is, it should not create a “gap”
between the two statutes to allow parties to enforce remedies typically stayed
in a bankruptcy after the conclusion of CCAA proceedings. 11
Conclusion
With Century Services, the Supreme Court has communicated a desire
to maintain consistency in insolvency and restructuring proceedings
and has discouraged statute shopping by treating creditors equally in
both regimes. The decision is a clear illustration that, although the BIA
and CCAA are two separate statutes, they work together as one scheme.
Going forward into 2011, secured creditors can breathe a sigh of relief,
knowing that their priority position relative to Crown claims for GST/
QST in a CCAA restructuring will be maintained.
Footnotes
1
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.
2
Income Tax Act, R.S.C. 1985, c. 1, 5th Suppl.
3
Canada Pension Plan, R.S.C. 1985, c. C-8.
4
Employment Insurance Act, R.S.C. 1996, c. 23.
5
Quebec Sales Tax.
6
Excise Tax Act, R.S.C. 1985, c. E-15.
7
Companies’ Creditors Arrangements Act, R.S.C. 1985, c. C-36.
8
See, for instance, the Ontario Court of Appeal decision of Ottawa Senators Hockey Club
Corp. (Re) (2005), 73 O.R. (3d) 737 (C.A.), which held that the GST deemed trust created
by the Excise Tax Act trumped provisions in the CCAA that nullified the trust. This decision
was not followed uniformly by other provincial courts in Canada (e.g., Komunik Corp.
(Arrangement relatif à), 2009 QCCS 6332 (CanLII), leave to appeal granted, 2010 QCCA
183 (CanLIIP)).
9
Century Services Inc. v. Canada (Attorney General), 2010 SCC 60 (Century).
10
Century, ibid. at para. 47, citing Gauntlet Energy Corp., Re (2003), 30 Alta. L.R.
(4th) 192, at para. 21.
11
Century, ibid. at para. 80.

3
Set-Off Rights in
Oil & Gas Insolvencies:
the SemCAMS Saga Continues
by Simina Ionescu-Mocanu
Introduction
The law of set-off allows a party who has
mutual dealings with another to literally “set
off” (or offset) amounts that it owes the other
party against whatever amounts the other
party owes to it. The right of set-off applies
notwithstanding the onset of insolvency and
restructuring proceedings.
In typical insolvencies, most creditors recover
only a portion of the amounts owed to them
by the insolvent debtor. Set-off is particularly
beneficial in this context because creditors do
not have to take a discounted value for their
debts while paying the obligations that they
owe to the debtor in full.
In our June 2010 issue of On Record: Energy, we
provided a summary of two Alberta Court of
Appeal decisions arising out of the SemCAMS
ULC Companies’ Creditors Arrangement Act 1
(“the CCAA”) proceedings: Nexen Marketing v.
SemCAMS ULC 2 [“Nexen”] and Trilogy Energy LP
v. SemCAMS ULC 3 [“Trilogy”]. In both decisions,
the Alberta Court of Appeal (“the Court of
Appeal”) restricted the availability of set-off to
very limited circumstances.
In December of 2010, the Court of Appeal
released another judgment in the SemCAMS
ULC restructuring, this time denying leave to
Celtic Exploration Ltd. (“Celtic”) in SemCanada
Crude Co., Re 4 [“Celtic”]. Similar to Trilogy and
Nexen, Celtic confirms that courts in Alberta have
chosen to adopt a narrow approach to set-off in
insolvency proceedings.

4 Insolvency & Restructuring
Facts in Celtic
SemCAMS ULC (“SemCAMS”) was the operator
and the joint owner of natural gas processing
plants and gas gathering systems and pipelines
in Alberta, including the facilities at the Kaybob
South Amalgamated Plant (“the KA Plant”).
The KA Plant operated pursuant to a construction,
ownership and operation agreement among
the joint owners of the plant and SemCAMS as
operator (“the CO&O Agreement”). Parties could
have their natural gas processed at the KA Plant
in two ways: (i) as joint owners under the CO&O
Agreement, or (ii) as third party users under gas
handling and processing agreements (each,
“a Gas Processing Agreement”).
Joint owners and third party users made monthly
payments to SemCAMS, as operator, based on
the plant’s projected use. At the end of a calendar
year, a “thirteenth month adjustment” reconciled
projected throughput to actual throughput.
Celtic was a natural gas producer that originally
processed its gas at the KA Plant as a third
party user under a Gas Processing Agreement.
In 2006, Celtic and SemCAMS terminated
this agreement and entered into the Inlet Gas
Purchase Agreement (“the IGPA”). Under
the IGPA, Celtic sold its raw natural gas to
SemCAMS and transferred title to the gas at the
KA Plant. SemCAMS then processed the gas
using its capacity and priority rights as a joint
owner in the KA Plant.
On July 22, 2008, the Alberta Court of Queen’s
Bench granted SemCAMS creditor protection
under the CCAA. A series of communications
between Celtic’s and SemCAMS’ management
ensued, which left SemCAMS with the
impression that the IGPA had been suspended
as of the date of the initial CCAA filing. Celtic
eventually denied this fact.
Celtic continued to deliver raw natural gas to
the KA Plant after July 22, 2008. However,
since SemCAMS believed that the IGPA had
been suspended, it thought it was accepting
Celtic’s gas in its capacity as operator pursuant to
standard third party terms under Gas Processing
Agreements and not as a joint owner pursuant to
the IGPA. SemCAMS invoiced Celtic monthly
for standard gathering and processing fees that
it charged as operator to third party users.

5
When SemCAMS commenced CCAA
proceedings, it owed Celtic approximately $32
million, including approximately $1.4 million
pursuant to the thirteenth month adjustment
under the IGPA.
On October 9, 2009, Celtic purported to set off
the $1.4 million thirteenth month adjustment
against amounts that Celtic owed to SemCAMS
as operator for post-filing gas processing at the
KA Plant.
SemCAMS applied for an order declaring that
the IGPA was suspended effective July 22,
2008 and a declaration that Celtic was not
entitled to set-off.
IGPA Suspended
and Set-Off Denied
At the Court of Queen’s Bench level it was held
that the IGPA was suspended effective July 22,
2008 and that Celtic could not set off amounts that
it owed to SemCAMS after the suspension date
against SemCAMS’ pre-filing indebtedness under
the IGPA. 5 Celtic applied for leave to appeal.
Celtic Applies
for Leave to Appeal
(a) Determining Jurisdiction
and Examining the IGPA’s Suspension
The first issue that Celtic raised in its application
for leave to appeal was whether the lower court,
the Court of Queen’s Bench, had jurisdiction to
declare that the parties had agreed to suspend
the IGPA. Celtic argued that there were many
disputed facts at issue and that the lower court
should not have declared that the IGPA was
suspended without a full trial.
The Court of Appeal agreed with the lower
court’s analysis and held that section 11 of
the CCAA gave it broad jurisdiction to make
“any order” it considered “appropriate in the
circumstances” (subject to the restrictions set out
in the CCAA). 6 The issue of whether Celtic and
SemCAMS reached an agreement to suspend the
IGPA went to the integrity of the CCAA process.
A full trial was also unnecessary because the
lower court relied on objective evidence (written
correspondence between the parties setting out
their intentions), which showed that both Celtic
and SemCAMS agreed to suspend the IGPA.
Celtic
SemCAMS
(as Joint Owner)
Operator
fees
$1.4 M
(b) Set-Off in Light of Trilogy
Celtic had initially submitted that the IGPA
entitled it to set off its post-filing obligations
against SemCAMS’ indebtedness under the
thirteenth month adjustment. Since the Court
of Appeal had already agreed with the lower
court’s decision that the IGPA was suspended,
it had no basis upon which to find contractual
set-off in favour of Celtic.
Celtic then suggested that even if contractual setoff
was prohibited, it was still entitled to equitable
set-off because the parties’ identity remained
the same and the obligations in question arose
out of substantially the same relationship. The
Court of Appeal however, once again agreed with
the Court of Queen’s Bench and explained that
the suspension of the IGPA on July 22, 2008
meant that SemCAMS stopped purchasing and
processing Celtic’s natural gas as a joint owner.
After that date, SemCAMS processed the gas in
its capacity as operator of the KA Plant.
Applying the test set out in Telford v. Holt, 7 the
Court of Appeal held that Celtic had not met
the burden of establishing a close connection
between the parties’ cross-claims and had not
established that it would not be manifestly unjust
to disallow equitable set-off. It further noted that
Celtic involved virtually identical circumstances
to Trilogy. Similar to the creditor in Trilogy,
Celtic sought to set off amounts that SemCAMS
owed in its capacity as a joint owner against its
indebtedness to SemCAMS as operator. 8 As a
result, “allowing equitable set-off to Celtic in these
proceedings after denying it to Trilogy and other
producers in similar circumstances would raise
further issues of inequity.” 9
SemCAMS
(as operator)
Moving Forward: Best Practice
in Light of SemCAMS
Celtic confirms our initial conclusions concerning
set-off rights in Alberta following Trilogy and
Nexen. The Court of Appeal continues to narrow
the application of equitable set-off to limited
circumstances, especially in insolvency cases.
Similar to Trilogy, Celtic should serve as a warning
to participants and increase awareness to the
capacity in which their contracting counterparties
are acting, as such capacity may impact their ability
to utilize not only set-off rights which are typically
available contractually or at law, but also at equity.
To maintain contractual rights to set-off,
participants may want to consider using provisions
which specifically allow set-off even when
counterparties are acting as operators or trustees.
Joint owners delivering gas to parties who conduct
business in more than one capacity should request
their counterparties to confirm whether they
are accepting the gas as operators or in another
capacity. Non-operators may also wish to take
additional security to protect their exposure. 10
Footnotes
Celtic
{Gas Processing
Agreements}
{IGPA Thirteenth
Month Adjusment}
1
Nexen Marketing v. SemCAMS ULC (2009), 457 A.R. 336
(C.A.) [Nexen].
2
Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36.
3
Trilogy Energy LP v. SemCAMS ULC (2009), 460 A.R.
269 (C.A.), refusing leave to appeal SemCanada Crude Co.,
Re, 2009 ABQB 397
4
SemCanada Crude Co., Re., 2010 ABCA 403 [Celtic].
5
SemCanada Crude Company (Re), 2010 ABQB 531.
6
The Court further held that the issue of whether the IGPA was
suspended arose directly as a result of the CCAA proceedings
and had a strong impact on other creditors’ claims.
7
Telford v. Holt, [1987] 2 S.C.R. 193.
8
Celtic, supra note 4 at para. 39.
9
Ibid. at para. 121.
10
In Nexen, supra note 1, the Alberta Court of Appeal confirmed
that mere membership in the same corporate group could not
establish a sufficient connection to create a right of equitable
set-off. To avoid this risk, parties should obtain security for all
contracts entered into with a group of companies, even when
there is no direct risk of credit exposure.

6 Insolvency & Restructuring
Debt Restructuring
Using a Plan of Arrangement
by Emily T. Joyce, Student-at-Law
Introduction
Until recently, Canada Business Corporations Act 1 (the “CBCA”) plans of
arrangement were reserved for restructuring equity. Since section 192(3)
of the CBCA authorizes corporations that are “not insolvent” to make
an application under the statute, it was generally believed that insolvent
corporations were implicitly excluded from the CBCA’s ambit. As a result,
CBCA plans of arrangement were rarely used to restructure debt and were
never used if the restructuring company was insolvent. 2 Parties carried
out these restructurings almost exclusively under the Companies’ Creditors
Arrangement Act 3 (“the CCAA”).
Industry Canada’s Policy Statement
Industry Canada published a policy statement last year (“the Statement”)
which endorsed the view that the CBCA’s arrangement provisions are meant
to be facilitative and should not be construed narrowly. 4 The Statement
notes that plans of arrangement carried out under section 192 of the CBCA
can be used to affect a wide range of transactions, including “spin-offs” and
combinations of business enterprises, continuances of corporations to and
from other jurisdictions and “going-private” transactions.
The impetus for Industry Canada’s publication came from recent Canadian
decisions suggesting a more receptive approach to CBCA arrangements,
approving them for many different types of transactions with a variety of
objectives, including compromising debt.
What Is Needed to Meet the Solvency Test
Courts have approved arrangements and allowed applicant corporations
to satisfy the section 192(3) solvency requirement on two grounds. 5 First,
in restructurings involving a group of applicant corporations, courts have
held that section 192(3) can be satisfied as long as one of the applicant
corporations is solvent. This is the case even if one of the principal corporate
entities involved in the overall transaction is not solvent or if the solvent
applicant corporation was established just to take part in the plan. 6 Second,
plans of arrangement involving insolvent corporations have proceeded
where the applicant was insolvent at the interim hearing date, but became
solvent by the date of the final hearing.
Both these possibilities are explicitly recognized in the Statement, which
addresses potential concerns and should be reviewed by anyone considering
a debt restructuring under the CBCA. In some cases, proceeding under

7
Unlike the CBCA, which gives courts significant discretion in making interim orders,
the ABCA does not appear to empower courts to issue a stay of proceedings
against creditors.
traditional insolvency legislation may be more appropriate, especially if
the purpose of the restructuring is to carry out transactions that principally
involve compromising debt.
Proceeding with a CBCA Plan of Arrangement
In brief terms, the CBCA arrangement application process is as follows:
(a) Proposed Plan & Drafting of Information Circular (Stakeholder
Negotiations / Director’s Notice)
To initiate the application, the applicant’s debtors and creditors prepare and
draft a proposed information circular, which outlines the terms of the plan and
other necessary information about the restructuring process. The Director —
the CBCA appointed regulator — must review the circular before filing.
(b) Application for Interim Order
Parties then officially commence the CBCA process by applying to the court
for an “interim order”, which will set out the arrangement’s procedural
requirements, including service requirements, creditor meetings (and classes
of creditors) for the purpose of voting on the plan, and outlines a date for the
plan’s final approval. Although the interim order application may be made ex
parte (without notice), courts will hear objections and have the ability to vary
or even set aside the order on application by the Director. The Director may
make submissions at this hearing (and at the final order hearing, discussed
below). As a result, it is customary for the applicant to provide notice of the
interim order application and the relevant application material to the Director
at least five business days before the court application.
The principles governing the classification of creditors under the CBCA are
substantially similar to those employed in CCAA restructurings, which are
preliminarily concerned with grouping creditors with a commonality of
legal interests.
(c) Stakeholder Meetings and Vote
Although the CBCA does not contain a specific voting threshold for the
approval of a plan, case law indicates that a plan will be approved if at
least two-thirds in value of creditors who vote in each class support the
plan. However, given the absence of a statutorily established threshold,
the courts maintain a broad discretion to approve plans even if the twothirds
threshold is not met.
(d) Final Order for Plan Approval
A few days after the creditor vote, the applicant will schedule another
application for a final approval order. The criteria which the court must
apply when requested to approve a plan of arrangement under the CBCA
are well-established. The plan will be approved if the court is satisfied that
(i) all statutory requirements have been fulfilled, (ii) the arrangement is
put forward in good faith, and (iii) the arrangement is fair and reasonable. 7
Additionally, the court will also consider whether the arrangement
strikes a fair balance having regard to the interest of the corporation and
the circumstances of the case. Although a positive vote by creditors and
stakeholders is an important consideration in this regard, the vote is not
determinative of whether the arrangement will be approved.
The Statement also sets out several procedural safeguards to mitigate
any concerns, such as providing disclosure to known security holders,
appropriate voting requirements and obtaining independent opinion reports.
If the court grants the final order, the transaction outlined in the plan of
arrangement will close and be finalized almost immediately after the order
is filed or as set out on the information circular timetable. Indeed, this
entire process can take as little as 30 days from filing to the final hearing.
For some, the CBCA process can be efficient and very flexible. Section
192(4) of the CBCA—which gives courts a general discretion on an initial
application under section 192(4) to “make any interim or final order it
thinks fit”—provides courts with wide enough discretion to issue a stay
of proceedings against creditor actions. However, the additional hurdles
imposed by the solvency test and the court’s wider discretion in the
process bring forth added uncertainties and consequent risk of delay.
Using the ABCA for Debt Restructuring
Certain other corporate statutes do not impose a solvency limitation on
arrangements. For example, the Alberta Business Corporations Act (“the
ABCA”) 8 has no such limitation on arrangements. However, because the
ABCA contains no provisions for interim relief, it is unlikely courts would
be amenable to allowing the arrangement provisions of the ABCA to be used
for debt restructurings involving insolvent companies. Unlike the CBCA,
which gives courts significant discretion in making interim orders, the ABCA
does not appear to empower courts to issue a stay of proceedings against
creditors. The more limited power of a court under an ABCA arrangement
application militates against the possibility that an application involving
a potentially insolvent corporation would succeed. Recent commentary
also supports the view that section 193 of the ABCA permits only a solvent
company to make fundamental changes to its corporate structure. 9
Footnotes
1
Canada Business Corporations Act, R.S.C. 1985, c. C-44.
2
Peter Rubin & Bill Kaplan, Q.C., “Arrangement Provisions of the Canada Business
Corporations Act” Commercial Insolvency Reporter (December 2010) 21.
3
Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36.
4
Industry Canada, “Policy of the Director Concerning Arrangements under Section 192 of the
Canada Business Corporations Act” (January 4, 2010). This policy sets out the position of
the Director appointed under the Canada Business Corporations Act (the “Act”) as to the
permissible use of and appropriate procedural safeguards and substantive requirements
applicable to arrangements under section 192 of the Act.
5
See, for e.g.: In the Matter of a Proposed Arrangement Involving Ainsworth Lumber Co.
Ltd., Ainsworth GP Ltd. and Ainsworth Engineered Canada Limited Partnership, June 20,
2008, No. S-084425 (BCSC); In the Matter of a Proposed Plan of Arrangement of Tembec
Arrangement Inc., Tembec Industries Inc. and Tembec Enterprises Inc., January 24, 2008,
No. 08-CL-7367 (ONSC); Masonite International Inc. (Re), [2009] O.J. No. 3264 (SC); Trizec
Corp. (Re), [1994] A.J. No. 577 (QB) [Trizec]; Amoco Acquisition Co. v. Dome Petroleum
Co., [1988] A.J. No. 330 (CA).
6
St. Lawrence & Hudson Railway Co., [1998] O.J. No. 3934 (SCJ) [St. Lawrence].
7
See, for e.g. BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 at para. 137 Stelco Inc.
(Re), [2007] O.J. No. 4234 (SCJ) at para. 2; Trizec, supra note 5 at para. 13; St. Lawrence,
ibid at paras. 12-14.
8
Business Corporations Act, R.S.A. 2000, c. B-9.
9
Kelly Bourassa and Matthew Simpson, “Stay Under the Business Corporations Act (Alberta)”
(2011) National Insolvency Review at 8. Please note, however, that many arrangements
have used a combination of the CCAA and ABCA provisions in order to create two
combined reorganization plans.

8 Insolvency & Restructuring
Including Partnerships in
CCAA Proceedings
by Simina Ionescu-Mocanu
Introduction
Prior to Forest & Marine Financial Corp., Re. 1
[“Forest & Marine”], restructurings pursuant to
the Companies’ Creditors Arrangement Act 2 (as
amended, the “CCAA”) were typically limited
to debtor “companies”— that is, “corporations”
or other “legal persons” incorporated under a
provincial or federal statute and, as of September
2009, income trusts. As a result, the general
consensus was that the CCAA did not apply to
partnerships because they were not “companies”
under the statute. In Forest & Marine, the
British Columbia Court of Appeal (“the Court of
Appeal”) applied the CCAA stay of proceedings to
a partnership even though the partnership itself
was not named in the CCAA initial order.
The decision also deals with the appropriateness
of the CCAA process in liquidation-based
restructurings. In Cliffs Over Maple Bay
Investments Ltd. v. Fisgard Capital Corp. 3 [“Cliffs
Over Maple Bay”], the same court had suggested
that using the CCAA to effect a sale, wind up
or liquidation of a debtor’s business violated
the CCAA’s fundamental purpose of enabling a
business to survive as a going concern. Forest &
Marine broadened the application of the statute
once again to cases where the debtor had yet
to develop a clear restructuring plan. The case
appears to reaffirm the flexibility of the CCAA
process and the fact that a court’s decision to
approve a stay or plan ultimately depends on the
degree to which the restructuring benefits the
debtor’s largest group of stakeholders.
Facts
Forest & Marine Financial Limited Partnership
(“the Partnership”) was part of a group of related
investors and corporations (“the Group”), which
were in the business of providing financial and
investment services. The Partnership was the
Group’s main operating entity and owned its
operating assets. Its main liabilities consisted of
debt owing to Asset Engineering LP (“AE”) — a
secured creditor that held a general security
agreement over the Partnership’s loans and
accounts receivable and a second mortgage on
one of its buildings. The other members of the
Group guaranteed the Partnership’s indebtedness
and granted collateral security in support of
their guarantees. The Partnership defaulted.
AE demanded full payment of the Partnership’s
indebtedness and applied for the appointment of
an interim receiver over the Group. In turn, the
Group sought CCAA protection.
The British Columbia Supreme Court (“the
Supreme Court”) granted an initial order in
favour of the Partnership and dismissed AE’s
receivership application. Less than 40 days
later, the Supreme Court extended the stay
of proceedings to July 31, 2009 and granted
CCAA protection to the entire Group pursuant
to the Supreme Court’s inherent jurisdiction.
AE appealed to the Court of Appeal.
Including the
Partnership in the Stay
The first issue on appeal was whether the
Partnership could use the CCAA to obtain
creditor protection, as the statute, on its
face, applied to debtor “companies” only. 4
The Court of Appeal upheld the lower court
decision and held that although the CCAA did
not technically apply to limited partnerships,
the Partnership or the limited partners did
not have to be included in the CCAA order
to effect a stay of proceedings in relation to
these parties. 5
In doing so, the Court of Appeal noted that
a partnership is not a legal entity per se, but
rather “the relationship which subsists between

9
persons carrying on business”. 6 Because a
limited partnership is not a recognized legal
entity, in most structures, the general partner
controls the limited partnership’s property
and its business relationship with its creditors
(not the limited partnership itself). 7 This
meant that the Court of Appeal could prevent
proceedings against the business and assets
of the Partnership and its limited partners
by simply ordering a stay in relation to the
Partnership’s general partner — an entity that
fit the definition of a “company” under the
CCAA.
However, there was one more procedural
difficulty that the Partnership had to face.
Similar to the rules in Alberta, the provincial
rules of civil procedure in British Columbia
allowed a partnership to be sued in its own
name. In the Court of Appeal’s view, this
allowed the possibility of multiple proceedings,
which would create an “obvious and apparent
conflict” with the CCAA order. To forestall
this procedural problem and obtain control
over its own process, the Court of Appeal used
its inherent discretion to grant the stay to the
entire Group, including the Partnership. 8
Should the Court Have Granted
a Stay in the First Place
The second issue in this case was whether the
stay was appropriate in light of the Court of
Appeal’s prior comments in Cliffs Over Maple
Bay. In that case, the debtor company (a real
estate developer) applied for CCAA protection
but had no intention to propose a plan of
arrangement or continue its business after its
proposal was complete. A stay was refused
because the Court of Appeal did not believe
that the restructuring could result in anything
other than the distribution of proceeds from the
debtor’s liquidation to its secured creditors in
what appeared to be a simple order of priorities.
The Court of Appeal found Forest & Marine
to be quite different from Cliffs Over Maple
Bay. 9 Here, the Partnership was at the centre
of a complicated corporate group and carried
on an active financing business that it hoped
to save notwithstanding the current economic
downturn. CCAA protection was appropriate
even though the Partnership did not know
whether the restructuring would ultimately
result in refinancing or involve a reorganization
and compromise. Its process qualified as a
valid CCAA plan because it contemplated the
possibility of a creditor compromise. If the
Group were put into liquidation, many of the
Partnership’s customers in the coastal marine and
forest industries would be negatively affected.
AE’s position, on the other hand, was well
secured and the Partnership projected making
further payments to reduce its total indebtedness.
Granting a stay in this case would further the
CCAA’s fundamental purpose — preserving the
parties’ status quo, thus enabling the debtor to
prepare a plan and remain in business for the
benefit of all stakeholders. 10
Conclusions & Food for Thought
Forest & Marine illustrates a more practical
approach to the CCAA process, broadening its
ambit to include new participants. The decision
also implies that courts will stay proceedings
under the CCAA even if its participants have
yet to determine whether the restructuring will
ultimately involve refinancing or reorganization.
Forest & Marine confirms that the main concern
in these cases continues to be the degree to
which the restructuring benefits the largest
group of stakeholders.
Some have also noted that the question of
whether a debtor may sell its assets during CCAA
proceedings without a formal restructuring plan
may have been answered by recent legislative
amendments. 11 Newly enacted section 36(1) of
the CCAA states that a debtor cannot sell its assets
outside of the ordinary course of business without
court approval. This provision lists certain factors
that courts must consider when deciding whether
to approve these sales. The debtor’s completion
of a plan is not a listed factor. However, more
recent decisions considering section 36(1) have
held that courts may approve sales even if not
all the criteria are present and for reasons other
than those listed in the provision. Conversely,
courts may refuse to approve sales for reasons
not mentioned in section 36(1). 12
Regardless of whether liquidating under the
CCAA is appropriate, creditors must keep in
mind that discretion and flexibility are founding
principles in these types of restructurings. In
some cases, stakeholders may benefit more from
the leverage granted to them in a sale approval
application than during the plan voting process,
particularly if they hold a smaller claim and
cannot effect a veto.
At the same time, in instances where the
debtor does not intend to introduce a plan of
arrangement or where it is highly unlikely that
creditors would vote in favour of any plan,
debtors ought to expect increased scrutiny from
the courts in light of decisions such as Cliffs Over
Maple Bay. 13 In some cases, debtors ought to
consider if it is more efficient to cooperate with
creditors via a receivership and sale rather than
resorting to the CCAA to effect a liquidation.
Footnotes
1
Forest & Marine Financial Corp., Re (2009), 54 C.B.R.
(5th) 201 (B.C .C.A.) [Forest & Marine].
2
Companies’ Creditors Arrangement Act, R.S.C. 1985,
c. C-36.
3
Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital
Corp. (2008), 296 D.L.R. (4th) 577 (B.C. C.A.).
4
Forest & Marine, supra note 1 at para. 9.
5
Forest & Marine, ibid. at para. 20.
6
Forest & Marine, ibid. at para. 15, citing section 2 of the
British Columbia Partnership Act, R.S.B.C. 1996, c. 348.
7
Forest & Marine, ibid. at para. 18, citing Lehndorff
General Partner Ltd., Re (1993), 17 C.B.R. (3d) 24 (Ont.
Gen. Div. [Commercial List]); and Kucor Construction &
Developments & Associates v. Canada Life Assurance Co.
(1998), 41 O.R. (3d) 577 (C.A.).
8
Ibid. at para. 21. The Court noted that it was not granting
a “freestanding remedy” under the CCAA or exercising its
discretion to supplement perceived shortcomings in its
application. Rather the Court used a “… purely procedural
step to forestall a purely procedural problem.”
9
Forest & Marine, ibid. at para. 26.
10
Ibid.
11
Rogers, L. “Latest Developments in CCAA Sales”, The Six
Minute Debtor-Creditor and Insolvency Lawyer 2009, The
Law Society of Upper Canada (October, 2009).
12
Re White Birch Paper Holding Co., 2010 QCCS 4915;
leave to appeal refused 2010 QCCA 1950, citing Re
Canwest Publishing Inc./Publications Canwest Inc. (2010),
68 C.B.R. (5th) 233 (Ont. S.C.J. [Commercial List]); and
Re Nortel Networks Corp. (2009), 56 C.B.R. (5th) 224
(Ont. S.C.J. [Commercial List]).
13
For a similar finding, see Madam Justice Kent’s recent
decision in Octagon Properties Group Ltd., Re 2009 ABQB
500, heard just two months after Forest & Marine.

Women Build 2011
BD&P is pleased to be presenting sponsor of a new initiative of Habitat for Humanity Calgary — that of Women Build 2011.
The Women Build program is an international movement that helps bring women together for a common purpose: to change the lives
of families in their communities. Women of all ages and backgrounds are encouraged to volunteer in a non-traditional capacity —
that of construction! It allows participants to learn new skills while contributing at the same time to the provision of safe,
comfortable homes in which families can grow and prosper.
The Women Build Program was focused during the week of May 2nd to 7th with the building of a 5-plex in Cochrane which will
ultimately house 5 families. BD&P hosted a unique kick-off party on April 19, 2011 complete with a station for bedazzling hammers
and a feature drink, “the Drill Bit-ini” designed to launch the All Women Build Program in Calgary. A group of BD&P female lawyers
and clients will be onsite in Cochrane to take part in the all women build on Saturday, May 7. It promises to be an exciting day!
A number of our female lawyers and staff were involved in an all women build in November 2010 and couldn’t say enough about
the positive experience they had working side by side with their colleagues in furtherance of the dream of a young family
previously residing in less than ideal circumstances.
Common Sense,
Uncommon Innovation.
BD&P is a leading Canadian law firm of over 135 lawyers skilled
in virtually every aspect of business law and litigation.
1400, 350-7th Avenue SW, Calgary, Alberta T2P 3N9
Phone: 403-260-0100 Fax: 403-260-0332
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